Financial Traps To Avoid
We all get a little excited sometimes and just let ourselves ‘go with the flow’. While this can be fun to do every once in a while, you should make sure you are not falling into these simple yet tricky traps when investing/trading:
1. Familiarity:
Being familiar with a company can be reassuring and make us want to invest in it, simply because we already know the company, have interacted with it or love them as a brand. However, these are not valid points when choosing where to invest your money. By doing this, you’d be ignoring perhaps worthier investments just because they’re unfamiliar to you.
How can you avoid this?
Diversification; instead of buying many stocks in companies that you are familiar with, which doubles the risk if the company performs poorly, you can lower the risk factor by focusing on many markets at a time. A diversified portfolio like Wealthface’s portfolios are key to help you avoid this trap.
2. Anchoring:
Anchoring happens when you stick to the past and think a company is great to invest in just because it reached a high value per share in the past. You have to keep in mind that in stock trading, the past is the past. It doesn’t predict the future. There are an infinite number of reasons you might decide to invest in a certain company. But Berkshire Hathaway CEO Warren Buffett says “There’s one thing you should always avoid: Buying a stock merely because you think it’s going to increase in price.”
How can you avoid this?
Diversification also helps a lot in this case. Additionally, with Wealthface’s pre-built 20 stocks basket, you can pick an investment strategy, analyze performance and replicate factors-based portfolios in seconds; which will help you choose the best options for your needs.
3. Bear Traps
What is it? It is when the price of a stock begins to drop, and traders who bought that stock immediately start selling it — to avoid losing a big amount of money. Because of this mass selling, that stock’s pool of sellers far exceeds its pool of buyers, and the price starts rising.
How can you avoid this?
Avoid rushed purchases and sales; luckily Wealthface’s 24/7 expert assistance and factor investing tool makes avoiding these traps much easier for traders.
4. Bull Traps
A bull trap occurs when the price of a certain stock is falling then suddenly begins to rise. Keep in mind that this upward trend is usually extremely short because so many traders immediately buy that stock. So what happens? The stock’s purchasers outnumber the sellers, and this a no-go for you.
How can you avoid this?
If a stock price manages to keep climbing throughout the day, then it is most likely solid and reliable. For further information you can also ask wealthface’s experts 24/7 and learn more on our website.
Another advice would be that whenever you trade, you want to be aware of what the higher timeframe is doing.
Let’s say you’re trading on the daily timeframe; you should also look at what a weekly time frame is doing to make sure your trading direction is aligned with it as well before you make your decision.
When both timeframes’ directions are aligned, that’s where you’ll find a higher probability trading setup.
To conclude, successful traders are the ones who separate their emotions from their trading strategies. They are also the ones who learn about all possible traps they might fall into and keep them in mind at all times. Wealthface provides comprehensive information on companies, exchanges, and markets to make sure you make the right trading decision.
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Wealthface is a one-stop online investment company that services all kinds of investors. It provides affordable high-quality investment products and services, tailored to each type of investor, and delivered at a low cost in a fully transparent manner. The company plays the role of a Fiduciary investment advisor, which means it always puts the client’s interest first.
